March 21 2012 10:14 AM

Also, we bid a sad farewell to the Millionaires Tax

Gov. Jerry Brown
Photo by Dave Rolland

Just for fun, you should read each local media organization's account detailing Monday's release of an independent analysis of a controversial proposed overhaul of the city of San Diego's employee-pension system. Some led with how much money it would (might) save over the long run while others began their coverage with more critical parts of the analysis. That's why CityBeat's mantra is that press objectivity is a myth. Read them all for a broad view. For our part, we'll continue to make the following points:

Supporters of the overhaul, which will be on the June ballot, want you to think that switching all new city employees to a kind of 401(k) plan—to make it more like your crappy plan—will save taxpayers a billion dollars. Not true. Monday's analysis by the City Council's Independent Budget Analyst (IBA) confirms that the switch from a defined-benefit plan to a defined-contribution plan will likely cost the city $13 million over 30 years, or $56 million when adjusted for inflation.

The IBA concluded that the measure as a whole might save taxpayers $950 million after 30 years, or $581 million when adjusted for inflation. But all of the savings come from a provision that has nothing to do with overhauling the pension system. The money-saving provision freezes for five years the amount of a current employee's pay that factors in to his or her retirement benefit. However, that might be illegal, and it can be overturned by a two-thirds vote of the City Council. Even with that provision, the measure would cost the city more than $50 million over the first few years, which leads to our most important point:

The problem with the pension system is in the short run—the next 15 years or so. Why is that? Because the pension system was effectively reformed in 2008, when benefits were dramatically lowered for all new employees. As a result of those reforms, the payments the city has to make to the pension fund will be greatly reduced in 2026 and even more in 2029. The reason we have to wait that long is because the benefits promised to current employees are protected by law.

Supporters of the measure, which will be called Prop. B, don't want you to know that long-term reforms were enacted in 2008, because it reveals that the part of Prop. B that closes the pension system and opens a 401(k) is unnecessary—not to mention, as noted by the IBA, costly for taxpayers.

RIP, Millionaires tax

Progressive activists are livid over a compromise forged last week between the California Federation of Teachers (CFT) and Gov. Jerry Brown on what kind of tax increase to pitch to statewide voters in the November election. Brown and his allies wanted a "shared sacrifice" measure that included temporary increases of sales and income taxes; the CFT and its allies supported the so-called "Millionaires Tax" that would permanently raise taxes on the highest earners and leave the sales tax alone. The CFT agreed to stop supporting the Millionaires Tax in exchange for a smaller increase in the sales tax and a larger increase in wealthy folks' income taxes.

But many supporters of the Millionaires Tax are chiding CFT leadership for caving to the hardball power politics played by Brown and his team, which includes the California Teachers Association (the larger and much more powerful teachers union) and the Service Employees international Union. A sales-tax increase is regressive, they argue, and burdens middle and lower earners. And they say the capitulation came amid polls that show the Millionaires Tax polling better than Brown's proposal.

We understand their anger. We favored the Millionaires Tax, too. It's unfortunate that Brown and his allies didn't get behind it.

But what's done is done. Supporters of the Millionaires Tax could continue on, but without the CFT, the proposal loses much of the wind beneath its sails. We all have to suck it up and get behind Brown's initiative while also opposing a third initiative—backed by wealthy attorney Molly Munger— that spreads a tax increase more evenly among the socioeconomic classes and directs more of the new revenue toward schools. That sounds good, but recent budget cuts have decimated social services at a time when poor folks are the most needy. After tens of billions of dollars' worth of cuts, the state's facing another deficit of at least $9 billion, and education isn't the only government service in trouble.

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